Facebook has announced that it will be closing down its Parse application platform in January 2017, marking its withdrawal from the race to challenge Google, Amazon and Microsoft in the IoT application market. Parse provides the backend services that the applications require to function, and with the exit, it appears that Facebook has turned its attention away from a platform that looked set to deliver significant IoT revenues.
It acquired Parse for some $85m back in 2013, and grew the number of applications it hosted from around 60,000 to today’s 600,000-plus figure. Back in March, Facebook launched a new Parse SDK for developers to use, and at the time, it appeared that the company was planning allow these apps to leverage Facebook in order to provide better alerts and notifications.
The end-goal of such an integration would be to feed the data generated by connected devices into Facebook’s profiles and integrations – to easily allow smart home devices to alert owners to events or triggers, for instance. While Parse already had some notable customers, including Chamberlain (garage door openers), Milestone Sports (wearable fitness tracker), and Roost (connected smoke alarm batteries), it seems that Facebook has moved its focus away from becoming a bridge between smart homes and their inhabitants.
While that model might sound a little farfetched, it fits with Facebook’s current strategy of expanding the functionality of its mobile apps. At the same time as the Parse SDK launch, Facebook announced that it would be allowing third-party apps to integrate with the Messenger app (which has 600m monthly users), with potential uses including delivery tracking notifications or customer support services using the app to speak to the user.
In addition, the data generated by such a system would also have been very valuable to Facebook, as it would have enabled it to really flesh out its advertising profiles. For the developers, the data would allow them to improve the functionality of their own apps and devices, or incorporate them directly into Facebook’s core apps – which have extremely large mobile user bases.
All the data sourced from the integration of Facebook’s web platform and the physical devices that consumers used in their day-to-day lives could potentially allow developers to offer perks like location-based triggers for HVAC systems, using the location data pulled by Facebook from the app to determine when a user has left work. Similarly, the integration allows users to send commands and queries to these devices through Facebook’s cloud infrastructure, using Messenger to turn up a thermostat or check in on the house.
But all this seems to have been shelved, and the motive for such a decision isn’t immediately obvious. Parse’s devices seemed like a very valuable addition to Facebook’s core business – selling highly personalized ad impressions to buyers.
While its main rivals offered the same sort of cloud computing capabilities, Facebook had a very unique offering in its social media integrations. While Amazon, Google, and Microsoft might have offered more fully featured portfolios than Parse, none of them had the same potential reach as Facebook.
Which implies that Facebook was receiving some internal pressure to focus on profit-making projects, or simply received the estimated cost of the R&D needed to develop a strong alternative to those other cloud computing platforms.
Numbers are a little hard to come by in this market, but it’s worth noting that Amazon Web Services recently posted a $2.4bn quarterly profit. As the largest cloud computing platform provider, Amazon’s AWS makes generates around $2.4bn in quarterly revenue. While that often bothers Amazon shareholders, factions of which frequently call for AWS to be spun-out as a single entity.
Microsoft’s Azure sits in second place, but doesn’t disclose its quarterly revenue, which is thought to be around the $1.5bn mark. Google is thought to be significantly off the mark, sitting in third place with around $300m a quarter.
Facebook generates north of $5.8bn a quarterly, mostly thanks to its advertising businesses, and so won’t be feeling much pressure to attempt to dethrone Google’s third place $300m a quarter, and attempt to climb up to challenge AWS. The cost of doing so would likely make very little business sense, despite the very large potential of using Facebook accounts to bridge the digital-physical divide.
But it would be unlikely that Facebook would walk away from IoT apps and services entirely. After all, with upwards of 1.5bn active monthly users, it has a lot of potential reach for cross-selling services and integrations to businesses looking to tie into the largest social media platform in the world.
Facebook will also be facing increased pressure from its shareholders this week, as its Free Basics sponsored-data initiative has just been banned in India – citing net neutrality violations. But with Instagram and WhatsApp both ticking along nicely under their Facebook overlords, and Oculus’ VR headset showing signs of doing the same when it launches later this year, Facebook seems to have a successful track record in portfolio expansions – and the IoT is likely to be another area in which it can grow.